UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-Q

ý

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2009Oro

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period
from                  to


Commission File Number: 0-6910



TEL OFFSHORE TRUST(Exact name of registrant as specified in its charter)

Texas(State or other jurisdiction
of incorporation or organization)

76-6004064(I.R.S. Employer Identification No.)The Bank of New York Mellon Trust Company, N.A.
919 Congress Avenue
Austin, Texas(Address of principal executive offices)

78701(Zip Code)


(800) 852-1422(Registrant's telephone number, including area code)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No ý

As of August 6, 2009, 4,751,510 Units of Beneficial Interest in TEL Offshore Trust were outstanding.



---





NOTE REGARDING FORWARD LOOKING STATEMENTS

This Form 10-Q includes "forward looking statements" within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-Q
are forward looking statements. Although the Managing General Partner of the TEL Offshore Trust Partnership has advised the Trust that the Managing General Partner believes that the expectations
reflected in the forward looking statements contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Important factors that could cause actual
results to differ materially from expectations ("Cautionary Statements") are disclosed in this Form 10-Q, including, without limitation, in conjunction with the forward looking
statements included in this Form 10-Q. A summary of certain principal risks and Cautionary Statements is also included in the Trust's Annual Report on Form 10-K
for the year ended December 31, 2009 under Part I, Item 1A. "Risk Factors." All subsequent written and oral forward looking statements attributable to the Trust or persons acting
on its behalf are expressly qualified in their entirety by the Cautionary Statements.

i

---





PART IFINANCIAL INFORMATION

Item 1.    Financial Statements.

TEL OFFSHORE TRUST  STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS    (Unaudited)

June 30,
2009

December 31,
2008AssetsCash and cash equivalents

$
1,691,500

$
2,973,140Net overriding royalty interest in oil and gas properties, net of accumulated amortization of $28,237,686 and $28,236,317, respectively


29,969


31,338Total assets

$
1,721,469

$
3,004,478Liabilities and Trust CorpusDistribution payable to Unit holders

$


$
739,849Reserve for future Trust expenses


1,691,500


2,233,291Trust corpus (4,751,510 Units of beneficial interest authorized and outstanding)


29,969


31,338Total liabilities and Trust corpus

$
1,721,469

$
3,004,478


STATEMENTS OF DISTRIBUTABLE INCOME    (Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,2009

2008

2009

2008Royalty income

$


$
2,750,990

$


$
7,818,511Interest income


379


8,929


955


20,189379


2,759,919


955


7,838,700(Increase) decrease in reserve for future Trust expenses


210,775


109,269


541,791


(252,452
)General and administrative expenses


(211,154
)

(249,813
)

(542,746
)

(497,830
)Distributable income

$


$
2,619,375

$


$
7,088,418Distributions per Unit (4,751,510 Units)

$
.000000

$
.551272

$
.000000

$
1.491824


1

---



STATEMENTS OF CHANGES IN TRUST CORPUS    (Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,2009

2008

2009

2008Trust corpus, beginning of period

$
30,636

$
37,609

$
31,338

$
40,197Distributable income





2,619,375





7,088,418Distribution payable to Unit holders





2,619,375





7,088,418Amortization of net overriding royalty interest


(667
)

(2,007
)

(1,369
)

(4,595
)Trust corpus, end of period

$
29,969

$
35,602

$
29,969

$
35,602


The
accompanying notes are an integral part of these financial statements.

2

---





TEL OFFSHORE TRUST  NOTES TO FINANCIAL STATEMENTS  (Unaudited)

Note 1Trust Organization

Tenneco Offshore Company, Inc. ("Tenneco Offshore") created the TEL Offshore Trust ("Trust") effective January 1, 1983,
pursuant to the Plan of Dissolution ("Plan") approved by Tenneco Offshore's stockholders on December 22, 1982. In accordance with the Plan, the TEL Offshore Trust Partnership ("Partnership")
was formed in which the Trust owns a 99.99% interest and Tenneco Oil Company initially owned a .01% interest. In general, the Plan was effected by transferring an overriding royalty interest
("Royalty") equivalent to a 25% net profits interest in the oil and gas properties (the "Royalty Properties") of Tenneco Exploration, Ltd. located offshore Louisiana to the Partnership and
issuing certificates evidencing units of beneficial interest in the Trust ("Units") in liquidation and cancellation of Tenneco Offshore's common stock. The terms "Working Interest Owner" and "Working
Interest Owners," as used herein, refer to the owner or owners of the various Royalty Properties, which owners have changed from time to time since the original ownership of the Royalty Properties by
Tenneco Exploration, Ltd.

On
January 14, 1983, Tenneco Offshore distributed Units to holders of Tenneco Offshore's common stock on the basis of one Unit for each common share owned on such date.

The
terms of the Trust Agreement, dated January 1, 1983, provide, among other things, that:



The
Trust is currently administered by The Bank of New York Mellon Trust Company, N.A. (the "Corporate Trustee"), which succeeded JPMorgan Chase Bank, N.A. as the corporate
trustee, effective

3

---



October 2,
2006 pursuant to an agreement under which The Bank of New York acquired substantially all of the corporate trust business of JPMorgan Chase (formerly known as The Chase Manhattan
Bank), and Daniel O. Conwill, IV, Gary C. Evans and Jeffrey S. Swanson (the "Individual Trustees"), as trustees (the "Trustees").

Note 2Basis of Accounting

The accompanying unaudited financial information has been prepared by the Corporate Trustee. The accompanying financial information is
prepared on a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America ("generally accepted accounting principles"). The Corporate Trustee
and the Individual Trustees believe that the information furnished reflects all adjustments that are, in the opinion of the Trustees, necessary for a fair presentation of the results for the interim
periods presented. Such adjustments are of a normal and recurring nature. The financial information should be read in conjunction with the financial statements and notes thereto included in the
Trust's Annual Report on Form 10-K for the year ended December 31, 2008.

The
financial statements of the Trust are prepared on the following basis:



This
manner of reporting income and expenses is considered to be the most meaningful because the quarterly distributions to Unit holders are based on net cash receipts received from the
Working Interest Owners. The financial statements of the Trust differ from financial statements prepared in accordance with generally accepted accounting principles, because, under such principles,
Royalty income and Trust general and administrative expenses for a quarter would be recognized on an accrual basis. In addition, amortization of the net overriding royalty interest, which is
calculated on a units-of-production basis, is charged directly to Trust corpus since such amount does not affect distributable income.

On
the last business day of each calendar quarter, the Working Interest Owners pay to the Partnership 25% of the Net Proceeds for the immediately preceding Quarterly Period. A Quarterly
Period is each period of three months commencing on the first day of February, May, August and November. In turn, the Partnership distributes funds to its partners on the last business day of each
calendar quarter. Cash distributions from the Trust are made in January, April, July and October of each year, and are payable to Unit holders of record as of the last business day of each calendar
quarter. Thus, the cash conveyed to the Trust from the Royalty during the quarter ended June 30, 2008 substantially represents the revenues and expenses from the Royalty Properties from
February 2008 through April 2008. There was no cash conveyed to the Trust from the Royalty Properties from

4

---



November
2008 through April 2009. The financial and operating information included in this Form 10-Q for the three months ended June 30, 2009 and June 30, 2008
represent financial and operating information with respect to the Royalty Properties for the months of February, March and April 2009 and 2008, respectively. Similarly, financial and operating
information with respect to the Royalty Properties for the six months ended June 30, 2009 and June 30, 2008 represent financial and operating information with respect to the Royalty
Properties for the immediately preceding months of November through April. Income from the Royalty is recorded by the Trust on a cash basis, when it is received by the Trust from the Partnership.

Cash
and cash equivalents include all highly liquid, short-term investments with original maturities of three months or less.

The
changes in reserve for future Trust expenses include both changes of amounts deemed necessary by the Trustees and related distributions, as well as amounts paid from the reserve
during periods when the Trust has insufficient income to pay Trust expenses.

The
Trust reviews the net overriding royalty interest in oil and gas properties for possible impairment whenever events or circumstances indicate the carrying amount of the asset may not
be recoverable. If there is an indication of impairment, the Trust prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset
and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss may be recognized to write down the asset to the lower of its estimated fair value
or net book value. Preparation of estimated expected future cash flows is inherently subjective and is based on the Corporate Trustee's best estimate of assumptions concerning expected future
conditions. There were no write downs taken in the periods presented.

The
Special Cost Escrow account (Note 5) is established for the future costs to be incurred to plug and abandon wells, dismantle and remove platforms, pipelines and other
production facilities and for the estimated amount of future capital expenditures on the Royalty Properties. The funds held in the Special Cost Escrow account are not reflected in the financial
statements of the Trust. However, funds deposited to or released from the Special Cost Escrow account are included in the Royalty income.

The
preparation of financial statements requires the Trustees to make use of estimates and assumptions that affect amounts reported in the financial statements as well as certain
discounts. Actual results could differ from those estimates.

The
amount of cash distributions by the Trust is dependent on, among other things, the quantities of oil and gas produced from the Royalty Properties and the sales prices therefor. As
described herein, production ceased at Eugene Island 339 and Ship Shoal 182 and 183 following damages inflicted by Hurricane Ike in September 2008, and substantial uncertainties exist with regard to
future production from such Royalty Properties. It should be noted that substantial uncertainties exist with regard to future oil and gas prices, which are subject to material fluctuations due to
changes in production levels and pricing and other actions taken by major petroleum producing nations, as well as the regional supply and demand for gas, weather, industrial growth, conservation
measures, competition, economic conditions generally and other variables. The Trust does not enter into any hedging transactions on future production.

In
May 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 165, Subsequent Events ("SFAS 165"). SFAS 165 establishes principles and standards
related to the accounting for and

5

---



disclosure
of events that occur after the date of the balance sheet included in financial statements being presented, but before such financial statements are issued. SFAS 165 requires an
entity to recognize, in the financial statements, subsequent events that provide additional information regarding conditions that existed at the balance sheet date. Subsequent events that provide
information about conditions that did not exist at the balance sheet date are not to be recognized in the financial statements under SFAS 165. SFAS 165 is effective for interim and
annual reporting periods ending after June 15, 2009. The Trust adopted this standard effective as of June 30, 2009. The adoption of SFAS 165 did not have a material effect on the
Trust's financial statements. Subsequent events were evaluated through August 7, 2009, the date that these financial statements were issued.

Note 3Net Overriding Royalty Interest

The Royalty entitles the Trust to its share (99.99%) of 25% of the Net Proceeds attributable to the Royalty Properties. The Conveyance
dated January 1, 1983, conveying the Royalty Properties to the Partnership (the "Conveyance"), provides that the Working Interest Owners will calculate, for each period of three months
commencing the first day of February, May, August and November, an amount equal to 25% of the Net Proceeds from their oil and gas properties for the period. Generally, "Net Proceeds" means the amounts
received by the Working Interest Owners from the sale of minerals from the Royalty Properties less operating and capital costs incurred, management fees and expense reimbursements owing to the
Managing General Partner of the Partnership, applicable taxes other than income taxes, and a Special Cost Escrow account. The Special Cost Escrow account (See Note 5) is established for the
future costs to be incurred to plug and abandon wells, dismantle and remove platforms, pipelines and other production facilities, and for the estimated amount of future capital expenditures on the
Royalty Properties. Net Proceeds do not include amounts received by the Working Interest Owners as advance gas payments, "take-or-pay" payments or similar payments unless and
until such payments are extinguished or repaid through the future delivery of gas.

Note 4Distributions to Unit Holders

In accordance with the provisions of the Trust Agreement, generally all Net Proceeds received by the Trust, net of Trust general and
administrative expenses and any cash reserves established for the payment of contingent or future obligations of the Trust, are distributed currently to the Unit holders. Such distributions are
referred to as "distributable income." The amounts distributed are determined on a quarterly basis and are payable to Unit holders of record as of the last business day of each calendar quarter.
However, cash distributions are made in January, April, July and October and include interest earned from the quarterly record date to the date of distribution.

6

---



Set
forth below are the quarterly distributions made by the Trust for 2009 and 2008.

Quarter

Distribution2009:Second

$
0First


02008:Fourth

$
739,849Third


5,470,387Second


2,619,375First


4,469,043


Production
ceased at Eugene Island 339 and Ship Shoal 182 and 183 following damages inflicted by Hurricane Ike in September 2008. On March 25, 2009, the Trust announced there
would be no first quarter distribution. Similarly, on June 26, 2009, the Trust announced there would be no second quarter distribution.

There
are not likely to be sufficient Net Proceeds from the Royalty Properties for the Trust to make a regularly scheduled quarterly distribution to Unit holders for the foreseeable
future. As a result of the damage inflicted by Hurricane Ike, Net Proceeds will continue to be severely impacted by reduced production, from historical levels, and the amount of expenditures incurred
that are associated with such damages, including the expenditures required to plug and abandon the wells on Eugene Island 339, and, perhaps, to redevelop the facility at Eugene Island 339. Future Net
Proceeds from the Royalty Properties may take into account the Trust's share of project costs and other related expenditures that are not covered by the insurance of the operators of the Royalty
Properties. The Trust's net portion of the aggregate cost to plug and abandon the wells subject to the royalty on Eugene Island 339 is currently estimated to be approximately $13 million. If
development and production costs of the Royalty exceed the proceeds of production from the Royalty Properties, the Trust will not receive Net Proceeds until future proceeds from production exceed the
total of the excess costs plus accrued interest. Development activities may not generate sufficient additional revenue to repay such costs. Accordingly, there will not be sufficient Net Proceeds from
the Royalty Properties to make distributions for some period of time in the future. At this time, the ultimate outcome of these matters cannot be determined with any degree of certainty.

Note 5Special Cost Escrow Account

The Special Cost Escrow is an account of the Working Interest Owners, and it is described herein for informational purposes only. The
Conveyance provides for the reserve of funds for estimated future "Special Costs" of plugging and abandoning wells, dismantling platforms and other costs of abandoning the Royalty Properties, as well
as for the estimated cost of future drilling projects and other capital expenditures on the Royalty Properties. As provided in the Conveyance, the amount of funds to be reserved is determined based on
certain factors, including estimates of aggregate future production costs, aggregate future Special Costs, aggregate future net revenues and actual current net profits interest. Deposits into this
account reduce current distributions and are placed in an escrow account and invested in short-term certificates of deposit. Such account is herein referred to as the "Special Cost Escrow"
account. The Trust's share of interest generated from the Special Cost Escrow account

7

---



serves
to reduce the Trust's share of allocated production costs. Special Cost Escrow funds will generally be utilized to pay Special Costs to the extent there are not adequate current net profits to
pay such costs. Special Costs that have been paid are no longer included in the Special Cost Escrow calculation. Deposits to the Special Cost Escrow account will generally be made when the balance in
the Special Cost Escrow account is less than 125% of estimated future Special Costs and there is a Net Revenues Shortfall (a calculation of the excess of estimated future costs over estimated future
net revenues pursuant to a formula contained in the Conveyance). When there is not a Net Revenues Shortfall, amounts in the Special Cost Escrow account will generally be released, to the extent that
Special Costs have been incurred. Amounts in the Special Cost Escrow account will also be released when the balance in such account exceeds 125% of estimated future Special Costs. In the second
quarter of 2009 there were no funds released or escrowed from the Special Cost Escrow account. As of June 30, 2009, $4,306,735 remained in the Special Cost Escrow account. The funds held in the
Special Cost Escrow account are not reflected in the financial statements of the Trust.

Chevron
U.S.A. Inc. ("Chevron"), in its capacity as the Managing General Partner of the Partnership, has advised the Trust that additional deposits to the Special Cost Escrow
account may be required in future periods in connection with other production costs, other abandonment costs, other capital expenditures and changes in the estimates and factors described above. Such
deposits could result in a significant reduction in Royalty income in the periods in which such deposits are made, including the possibility that no Royalty income would be received in such periods.

Note 6Reserve For Future Trust Expenses

The Trust maintains a cash reserve, equal to approximately three times the average expenses of the Trust during each of the past three
years, to provide for future administrative expenses in connection with the winding up of the Trust. During the second quarter of 2009, the Trust used $210,775 from the reserve account for current
expenses, leaving a reserve balance of $1,691,500 as of June 30, 2009. The reserve amount at December 31, 2008 was $2,233,291.

8

---





Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

Critical Accounting Policies

The financial statements of the Trust are prepared on the following basis:



This
manner of reporting income and expenses is considered to be the most meaningful because the quarterly distributions to Unit holders are based on net cash receipts received from the
Working Interest Owners. The financial statements of the Trust differ from financial statements prepared in accordance with generally accepted accounting principles, because, under such principles,
Royalty income and Trust general and administrative expenses for a quarter would be recognized on an accrual basis. In addition, amortization of the net overriding royalty interest, calculated on a
units-of-production basis, is charged directly to Trust corpus since such amount does not affect distributable income.

The
Trustees, including the Corporate Trustee, have no authority over, have not evaluated and make no statement concerning, the internal control over financial reporting of the Working
Interest Owners.

Financial Review

In May 2007, the Trust engaged an independent oil and gas accounting firm for the purpose of reviewing the books and records of certain
Working Interest Owners with respect to the Royalty Properties and the related payments to the Trust. As part of this ongoing audit review process, certain adjustments to revenues, production volumes,
prices and capital expenditures have occurred, and references below to a prior period audit adjustment, or an audit of prior periods, refers to the audit described in this paragraph. The adjustments
resulting from such audit review have now been completed. See "Operational Review".

Three Months Ended June 30, 2009 and 2008

There were no distributions to the Unit holders for the three months ended June 30, 2009 as compared to distributions of
$2,619,375 or $0.551272 per Unit to the Unit holders for the same period in 2008.

Crude
oil and condensate revenues decreased $8,266,970, or 82%, to $1,813,293 in the second quarter of 2009 as compared to $10,080,263 in the second quarter of 2008, due primarily to
decreases in production resulting from damages caused by Hurricane Ike. Oil volumes decreased 66% to 35,475 barrels in the second quarter of 2009 from 103,147 barrels in the second quarter of 2008.
The revenues

9

---



for
the second quarter of 2009 reflect a credit of $186,806 associated with an audit for prior periods. The revenues and volumes for the second quarter of 2008 reflect a net debit for $22,361 in
revenues and a credit of 53 barrels associated with an audit for prior periods and certain other adjustments. The average price received for crude oil and condensate decreased 48%, or $46.62, to
$51.11 per barrel in the second quarter of 2009 from $97.73 per barrel in the second quarter of 2008. Prior to taking into account such adjustments to revenues and volumes, the average price received
for crude oil and condensate would have been $97.99 per barrel in the second quarter of 2008.

Gas
revenues decreased $3,065,947, or 99%, to $8,701 in the second quarter of 2009 from $3,074,648 in the second quarter of 2008, due primarily to decreases in production resulting from
damages caused by Hurricane Ike in September 2008. Gas volumes decreased 99% to 1,384 Mcf in the second quarter of 2009 from 353,503 Mcf in the second quarter of 2008. The revenues and volumes for the
second quarter of 2009 reflect debits to correct an error in revenue allocation in August 2008 for $4,603 in revenues and 1,234 Mcf of gas; the revenues and volumes for the second quarter of 2008
reflect credits associated with an audit of prior periods for $534,253 in revenues and 66,577 Mcf of gas. The average price received for natural gas decreased 28%, or $2.41, to $6.29 per Mcf in the
second quarter of 2009 from $8.70 per Mcf in the second quarter of 2008. Prior to taking into account such adjustments to revenues and volumes, the average price received for natural gas would have
been $5.08 per Mcf in the second quarter of 2009 and $8.85 per Mcf in the second quarter of 2008. Gas products revenue decreased $605,693, or 98%, to $13,060 in the second quarter of 2009 from
$618,753 in the second quarter of 2008, due primarily to a decrease in production volume of 488,231 gallons, or 99%, to 2,920 gallons in the second quarter of 2009 from 491,151 gallons in the second
quarter of 2008.

Capital
expenditures decreased $300,541, or 96%, from $311,505 in the second quarter of 2008 to $10,964 in the second quarter of 2009. The capital expenses were much lower in the second
quarter of 2009 given the operational status of the Royalty Properties resulting from the damages caused by Hurricane Ike. The capital expenditures in 2008 primarily relate to field workovers at Ship
Shoal 182/183 and Eugene Island 339 necessary to help improve production performance.

Operating
expenses increased by $7,990,458, or 288%, from $2,773,442 in the second quarter of 2008 to $10,763,900 in the second quarter of 2009, primarily as a result of well and
platform abandonment costs at Eugene Island 339 as a result of Hurricane Ike. Reflected within the operating expenses for the second quarter 2009 is a cost allocation refund of $78,260 for certain
prior period audit adjustments. Reflected within the operating expenses are management fees to Chevron, as Managing General Partner of the Partnership, of $499,426 and $361,725 for the second quarter
of 2008 and the second quarter of 2009, respectively.

The
Royalty Properties had undistributed net loss of $8,936,312 in the second quarter of 2009.

In
the second quarter of 2009, no funds were released or escrowed from the Special Cost Escrow account. As of June 30, 2009, $4,306,735 remained in the Special Cost Escrow
account. In the second quarter of 2008, there was a net release of funds from the Special Cost Escrow account. The Trust's share of the funds released was $41,817. As of June 30, 2008,
$5,353,559 remained in the Special Cost Escrow account. The funds held in the Special Cost Escrow account are not reflected in the financial statements of the Trust. The Special Cost Escrow account is
set aside for estimated abandonment costs and future capital expenditures, as provided for in the Conveyance. For additional information relating to the Special Cost Escrow account, see
"Special Cost Escrow Account" below.

10

---



Six Months Ended June 30, 2009 and 2008

There were no distributions to the Unit holders for the six months ended June 30, 2009 as compared to distributions of
$7,088,418 or $1.491824 per Unit to the Unit holders for the same period in 2008.

Crude
oil and condensate revenues decreased $19,220,510, or 87%, to $2,822,575 in the first six months of 2009 as compared to $22,043,085 for the same period in 2008, due primarily to
decreases in production resulting from damages caused by Hurricane Ike. Oil volumes decreased 77% to 53,985 barrels in the first six months of 2009 from 236,562 barrels in the first six months of
2008. The revenues and volumes for the first six months of 2009 reflect credits associated with an audit for prior periods for $224,511 in revenues and 311 barrels; the revenues and volumes for the
first six months of 2008 reflect credits associated with an audit for prior periods for $150,787 in revenues and 1,002 barrels. The average price received for crude oil and condensate decreased 44%,
or $40.90, to $52.28 per barrel in the first six months of 2009 from $93.18 per barrel in the first six months of 2008. Prior to taking into account such adjustments to revenues and volumes, the
average price received for crude oil and condensate would have been $48.40 per barrel in the first six months of 2009 and $92.94 per barrel in the first six months of 2008.

Gas
revenues decreased $5,471,464, or 87%, to $836,362 in the first six months of 2009 from $6,307,826 for the same period in 2008, due primarily to damages caused by Hurricane Ike in
September 2008. Gas volumes decreased 84% to 132,370 Mcf in the first six months of 2009 from 807,263 Mcf for the same period in 2008. The revenues and volumes for the first six months of 2009 reflect
net credits of $808,484 in revenues and 127,711 Mcf of gas for prior adjustments; the revenues and volumes for the first six months of 2008 reflect credits associated with an audit of prior periods
for $661,117 in revenues and 86,975 Mcf of gas. The average price received for natural gas decreased 19%, or $1.49, to $6.32 per Mcf in the first six months of 2009 from $7.81 per Mcf in the same
period of 2008. Prior to taking into account such adjustments to revenues and volumes, the average price received for natural gas would have been $5.98 per Mcf in the first six months of 2009 and
$7.84 per Mcf in the first six months of 2008. Gas products revenue decreased $1,590,561, or 89%, to $195,626 in the first six months of 2009 from $1,786,187 in the same period of 2008, primarily due
to an decrease in production volume of 1,176,611 gallons, or 87%, to 172,910 gallons in the first six months of 2009 from 1,349,521 gallons in the same period of 2008.

Capital
expenditures increased $401,560, or 352%, from ($114,172) in the first six months of 2008 to $287,388 in the same period of 2009. The negative capital expenditures number for the
first six months of 2008 resulted from a prior period audit adjustment. Reflected in the capital expenditures for the first six months of 2009 is a refund of $59,794 for certain prior period audit
adjustments.

Operating
expenses increased by $12,211,074, or 258%, from $4,736,015 in the first six months of 2008 to $16,947,089 in the first six months of 2009, primarily as a result of well
abandonment costs at Eugene Island 339 as a result of Hurricane Ike. Reflected in the operating expenses for the first six months of 2009 are cost allocation refunds of an aggregate of $115,252 for
certain prior period adjustments. Reflected within the operating expenses are management fees to Chevron, as Managing General Partner of the Partnership, of $1,030,241 and $607,249 for the first six
months of 2008 and the first six months of 2009, respectively.

The
Royalty Proprieties had undistributed net loss of $13,291,668 for the six months ended June 30, 2009.

11

---



In
the first six months of 2009, no funds were released or escrowed from the Special Cost Escrow account. In the first six months of 2008, there was a net release of funds into the
Special Cost Escrow account. The Trust's share of the net funds released was $1,360,005.

Reserve for Future Trust Expenses

In accordance with the provisions of the Trust Agreement, generally all Royalty income received by the Trust, net of Trust general and
administrative expenses and any cash reserves established for the payment of contingent or future obligations of the Trust, is distributed currently to the Unit holders. The Trust has previously
determined that a cash reserve equal to approximately three times the average expenses of the Trust during each of the past three years was sufficient to provide for future administrative expenses in
connection with the winding up of the Trust. During the second quarter of 2009, the Trust used $541,791 from the reserve for current expenses, leaving a reserve balance of $1,691,500 as of
June 30, 2009.

Other

The amount of cash distributions by the Trust is dependent on, among other things, the quantities of oil and gas produced from the
Royalty Properties and the sales prices therefor, as well as expenditures by the Working Interest Owners that may or may not be included in the Special Cost Escrow account. As described herein,
production ceased at Eugene Island 339 and Ship Shoal 182 and 183 following damages inflicted by Hurricane Ike in September 2008, and substantial uncertainties exist with regard to future production
from such Royalty Properties. It should be noted that substantial uncertainties exist with regard to future oil and gas prices, which are subject
to material fluctuations due to changes in production levels and pricing and other actions taken by major petroleum producing nations, as well as the regional supply and demand for gas, weather,
industrial growth, conservation measures, competition, economic conditions generally and other variables. The Trust does not enter into any hedging transactions on future production.

Operational Review

The platforms and wells on Eugene Island 339 were completely destroyed by Hurricane Ike in September 2008. Crude oil revenues from
Eugene Island 339 represented approximately 48% of the crude oil and condensate revenues for the Royalty Properties in 2007 and approximately 47% of such revenues for the nine months ended
September 30, 2008. Eugene Island 339 contributed approximately 12% of the revenues from natural gas sales from the Royalty Properties in 2007 and approximately 41% of such revenues for the
nine months ended September 30, 2008. Based on a prior year reserve study prepared by DeGolyer and MacNaughton, independent petroleum engineering consultants, Eugene Island 339 accounted for
approximately 34% of the total future net revenues attributable to the Partnership's interest in the royalty as of October 31, 2007. Chevron is working on the plugging and abandonment of the
existing wells, clearing debris and otherwise dealing with the remaining infrastructure. This will be a multi-year project. In order to restore production, Chevron would need to redevelop
the facility, including a new platform with production processing equipment, and to drill new wells. Chevron is still assessing its alternatives and the economic feasibility of restoring production at
Eugene Island 339. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at Eugene Island 339. Generally, if production ceases from an outer
continental shelf lease, like that for Eugene Island 339, production must be restored or drilling

12

---



operations
must commence within 180 days of the cessation (which was in early March 2009), or the lease will be terminated. A lease operator may seek approval from the regional supervisor of
the Mineral Management Service to allow additional time to restore production. Chevron submitted such a request with respect to Eugene Island 339 and, like other lessees dealing with the effects of
Hurricane Ike, was granted an extension until September 6, 2009 to submit a commitment to restore production. If Chevron elects to pursue the restoration of production from Eugene Island 339,
Chevron must submit a request for a Suspension of Operations ("SOP") prior to September 6, 2009. The SOP must include an estimated date for the restoration of production and must be approved by
the Mineral Management Service. As stated above, Chevron is still assessing its alternatives, and Chevron has not made a decision whether to submit an SOP to commit to restore production.

Production
at Ship Shoal 182/183 ceased following damage inflicted by Hurricane Ike in September 2008. While the hurricane caused limited surface damage to the facilities at Ship Shoal
182/183, all of the wells at Ship Shoal 182/183 were shut-in following hurricane-related damage to a third-party transporter's natural gas pipeline. Crude oil revenues from Ship Shoal
182/183 represented approximately 50% of the crude oil and condensate revenues for the Royalty Properties in 2007 and approximately 51% of such revenues for the nine months ended September 30,
2008. Ship Shoal 182/183 contributed approximately 77% of the revenues from natural gas sales from the Royalty Properties in 2007 and approximately 42% of such revenues for the nine months ended
September 30, 2008. A limited volume of oil production was restored in November 2008. During the second quarter of 2009, net crude oil production was 34,065 barrels. The volume of oil
production that can be produced is limited by the amount of gas that is also produced by the oil wells. The third-party transporter's natural gas pipeline repairs were completed and gas sales at Ship
Shoal 182/183 were restored on June 26, 2009. Chevron has been informed by the gas transporter that an estimated 30 day shut-in of the gas line will be required to make
further repairs. Once those repairs are completed, Chevron expects the oil and natural gas production and sales at Ship Shoal 182/183 to return to normal.

In
addition, production from West Cameron 643 and East Cameron 371 ceased following damage inflicted by Hurricane Ike in September 2008 to third-party transporters' pipelines. The
Managing General Partner of the Partnership understands that the pipelines are in the process of being restored. The pipeline for West Cameron 643 is not expected to be able to take production until
at least the end of 2009; there is no available estimate for when the pipeline for East Cameron 371 will be able to take production. At this point in time, there can be no assurance as to when, or if
at all, production may be restored at West Cameron 643 or East Cameron 371.

In
May 2007, the Trust engaged an independent oil and gas accounting firm for the purpose of reviewing the books and records of certain Working Interest Owners with respect to the
Royalty Properties and the related payments to the Trust. Based on the initial report of the accounting firm, the Trustees believed that certain errors in the books and records had occurred and have
been involved in ongoing discussions with such Working Interest Owners to resolve these items. As part of this ongoing process, certain adjustments to revenues, production volumes, prices and capital
expenditures have occurred, and references herein to an audit of prior periods refers to the audit described in this paragraph. Such audit resulted in an additional cash distribution to the Trust
during the first quarter of 2008. These amounts are comprised of a one-time increase of approximately $31,716 in gas revenues, a one-time increase of approximately $43,287 in
oil revenues, and a one-time credit of approximately $123,900 in capital expenditures. Additional amounts related to the audit were included in later distributions to the Trust during
2008. Additional credits were made for the benefit of the Trust in the

13

---



first
quarter of 2009, consisting of approximately $203,272 in gas revenues, approximately $9,426 in oil revenues, approximately $14,948 in capital expenditures and approximately $9,248 in operating
expenditures. All remaining audit adjustments were completed during the second quarter of 2009. The
Trust's proportionate interest in the various audit adjustments for the second quarter of 2009 included a one-time credit of $1,151 in gas revenues, an increase of $46,702 in crude oil
revenues related to Eugene Island 354 and a one-time credit adjustment of $19,625 in operating expenses.

Three Months Ended June 30, 2009 and 2008

The following operational information has been based on information provided to the Corporate Trustee by Chevron, as the Managing
General Partner of the Partnership, who received operational information from the other Working Interest Owners. The Trustees have no control over these operations or internal controls relating to
this information.

Volumes and dollar amounts discussed below represent amounts recorded by the Working Interest Owners unless otherwise specified.

Ship
Shoal 182/183 crude oil revenues decreased from $5,197,061 in the second quarter of 2008 to $1,564,170 in the second quarter of 2009, primarily due to a decrease in net crude oil
production from 52,448 barrels in the second quarter of 2008 to 34,065 barrels in the second quarter of 2009. The average crude oil price also decreased from $99.09 per barrel in the second quarter of
2008 to $45.92 per barrel for the same period in 2009. Gas revenues decreased from $941,566 in the second quarter of 2008 to $0 in the second quarter of 2009 due to cessation of gas production since
September 2008 resulting from damages caused by Hurricane Ike compared to production of 101,823 Mcf in the second quarter of 2008. The average gas sales price realized during the second quarter of
2009 was $0 per Mcf compared to $9.25 during the second quarter of 2008. Capital expenditures increased from $1,727 in the second quarter of 2008 to $6,982 in the second quarter of 2009. Operating
expenses increased from $945,438 in the second quarter of 2008 to $698,827 for the same period in 2009 due to an increase in operating and repair costs related to damages inflicted by Hurricane Ike,
and after taking into account in the second quarter of 2009 a credit of $78,260 associated with an audit of a prior period.

Eugene
Island 339 net crude oil revenues decreased from $4,755,226 in the second quarter of 2008 to $0 for the same period in 2009 due to a decrease in volumes from 49,114 barrels in the
second quarter of 2008 to 0 barrels in the second quarter of 2009. The average crude oil price was $96.82 per barrel in the second quarter of 2008 and $0 per barrel in the second quarter of 2009. Gas
revenues decreased from $1,469,332 in the second quarter of 2008 to $0 in the second quarter of 2009 due to a decrease in volumes from 174,483 Mcf in the second quarter of 2008 to 0 Mcf in the second
quarter of 2009. The gas revenues and volumes for 2008 reflect credits of $324,129 and 43,623 Mcf associated with an audit of prior periods. Capital expenditures decreased from $284,321 in the second
quarter of 2008 to $3,795
in the second quarter of 2009. There were limited capital expenditures during the second quarter of 2009 and the capital expenditures in the second quarter of 2008 primarily relate to repairs
associated with a conversion to a water injector. Operating expenses increased from $1,070,845 in the second quarter of 2008 to $9,274,930 in the second quarter of 2009 due to well abandonment costs
incurred as a result of Hurricane Ike.

West
Cameron 643 gas revenues were $624,351 in the second quarter of 2008 and ($4,603) in the second quarter of 2009. Gas production was 79,244 Mcf in the second quarter of 2008 and
(1,234) Mcf in the second quarter of 2009. There was no actual gas production during the second quarter of 2009

14

---



and
the revenues and volumes for the second quarter 2009 reflect debits to correct an error in revenue allocation in August 2008. The revenues and volumes for the second quarter of 2008 reflect
credits of $200,133 and 28,402 Mcf associated with an audit of prior periods. Operating expenses increased from $181,924 in the second quarter of 2008 to $417,432 for the same period in 2009 due
primarily to repairs of damages caused by Hurricane Ike. Capital expenditures were $0 in the second quarter of 2008 and $231 for the same period in 2009.

East
Cameron 371 crude oil revenues were $346 in the second quarter of 2008 and $0 in the second quarter of 2009 as a result of the field being shut-in following Hurricane
Ike in September 2008. Gas revenues were $4,659 for the second quarter of 2008 and $0 for the second quarter of 2009, also due to the shut-in of the field. Capital expenditures were $0 for
the second quarter 2008 and for the second quarter 2009. Operating expenses decreased from $12,792 in the second quarter of 2008 to $0 for the same period in 2009.

South
Timbalier 37/27 crude oil revenues decreased from $115,325 in the second quarter of 2008 to $62,297 for the same period in 2009 due to a four-day field
shut-in related to compressor problems. There was a decrease in crude oil production volumes to 1,409 barrels in the second quarter of 2009 from 1,445 barrels in the second quarter of
2008. Gas revenues decreased from $34,602 in the second quarter 2008 to $13,215 in the second quarter of 2009. There was an increase in natural gas volumes from (2,611) Mcf in the second quarter of
2008 to 2,604 Mcf in the second quarter of 2009. Gas volumes for the second quarter of 2008 reflect a debit of 5,464 Mcf related to revised volume allocations for the years 2004 through 2007. Capital
expenditures decreased from $3,439 in the second quarter of 2008 to $(45) in the second quarter of 2009 after taking into account a $45 credit primarily related to workover cost adjustments for wells
at South Timbalier 37. Operating expenses decreased from $62,988 in the second quarter of 2008 to $11,226 in the second quarter of 2009 after taking into account a $220 credit in 2009 for a prior
period adjustment.

Six Months Ended June 30, 2009 and 2008

Volumes and dollar amounts discussed below represent amounts recorded by the Working Interest Owners unless
otherwise specified.

Ship
Shoal 182/183 crude oil revenues decreased from $11,367,638 in the first six months of 2008 to $2,473,541 in the same period in 2009, primarily due to a decrease in net crude oil
production from 120,163 barrels in the first six months of 2008 to 51,189 in the same period of 2009. Included in the revenues and production for the first six months of 2008 was an upward adjustment
of $46,630 associated with an additional 178 barrels that were included from 2007 production. There was also a decrease in the average crude oil price from $94.60 per barrel in the first six months of
2008 to $48.32 per barrel for the same period in 2009. Gas revenues decreased from $2,614,285 in the first six months of 2008 to $725,720 in the same period of 2009. Gas production decreased from
336,697 Mcf in the first six months of 2008, which included an upward adjustment of 19,999 Mcf relating to 2007 production, to 0 Mcf in the same period of 2009. However, there was an audit adjustment
made in the first quarter of 2009, which resulted in the recognition of $725,720 in gas revenues associated with 107,416 Mcf of gas from a prior period. The inclusion of such adjustment for the 19,999
Mcf in 2008 resulted in an increase in revenues for 2008 of $123,946. The natural gas sales price was $7.76 per Mcf in the first six months of 2008 compared to $0 per Mcf in the first six months of
2009. Capital expenditures increased from ($466,499) in the first six months of 2008 to $27,443 in the same period of 2009 primarily due to a credit of $495,600 in the first six months of 2008 from an
audit adjustment for

15

---



prior
periods. Operating expenses decreased from $1,511,393 in the first six months of 2008 to $1,398,596 for the same period in 2009 due to a decrease in production, but offset by an increase in
operating and repair costs related to damages inflicted by Hurricane Ike.

Eugene
Island 339 net crude oil revenues decreased from $10,282,800 in the first six months of 2008 to $38,544 for the same period in 2009, due to a decrease in volumes from 111,572
barrels in the first six months of 2008 to 318 barrels in the first six months of 2009. However, there was no actual crude oil production during the first six months of 2009 and such crude oil
revenues and production volumes are entirely from an audit adjustment made in the first quarter of 2009 and associated with a prior period. The oil revenues for the first six months of 2008 reflect a
$81,750 credit relating to prior periods. The average crude oil price was $92.16 per barrel in the first six months of 2008. Gas revenues decreased from $2,461,106 in the first six months 2008 to
$170,231 for the same period in 2009, due to a decrease in natural gas volumes from 316,092 Mcf in the first six months of 2008 to 33,296 Mcf for the same
period in 2009. However, there was no actual gas production during the first six months of 2009 and such gas revenues and volumes are entirely from an audit adjustment made in the first quarter of
2009 and associated with a prior period. The gas revenues and volumes for the first six months of 2008 reflect credits of $324,129 and 43,623 Mcf associated with an audit of prior periods. Capital
expenditures decreased from $290,380 in the first six months of 2008 to $180,089 in the same period in 2009. There were limited capital expenditures during the second quarter of 2009 and the capital
expenditures in the first six months of 2008 primarily relate to repairs associated with a conversion to a water injector. Operating expenses increased from $1,463,934 in the first six months of 2008
to $14,220,452 in the same period in 2009 due to well abandonment costs incurred as a result of Hurricane Ike.

West
Cameron 643 gas revenues decreased from $921,625 in the first six months of 2008 to ($4,603) for the same period in 2009. This is due to a decrease in gas volumes from 121,432 Mcf
in the first six months of 2008 to (1,234) Mcf for the same period in 2009. There was no actual gas production during the first six months of 2009 and the revenues and volumes for the first six months
of 2009 are a result of debits to correct an error in revenue allocation in August 2008. Operating expenses increased from $348,423 for the first six months of 2008 to $740,330 for the same period in
2009, and capital expenditures were $0 for the first six months of 2008 and $135,291 for the first six months of 2009.

East
Cameron 371 crude oil revenues were $48,087 for the first six months of 2008 and $0 for the first six months of 2009 as a result of the field being shut-in following
Hurricane Ike in September 2008. Production decreased from 531 barrels in the first six months of 2008 to 0 barrels for the same period in 2009. Gas revenues decreased from $252,605 for the first six
months of 2008 to $0 for the same period in 2009 as a result of a decrease in gas volumes from 32,412 Mcf in the first six months of 2008 to 0 Mcf for the same period in 2009. Capital expenditures
were $0 in the first six months of 2008 and 2009. Operating expenses decreased from $292,982 in the first six months of 2008 to $0 for the same period in 2009.

South
Timbalier 37/27 crude oil revenues decreased from $285,366 in the first six months of 2008 to $116,021 for the same period in 2009 due to a four-day field
shut-in related to compressor problems. There was a decrease in crude oil production volumes to 2,409 barrels in the first six months of 2009 from 3,365 barrels in the first six months of
2008. Gas revenues decreased from $56,790 in the first six months of 2008 to $23,341 in the first six months of 2009. There was an increase in natural gas volumes from 536 Mcf in the first six months
of 2008 to 4,046 Mcf in the first six months of 2009. Gas volumes

16

---



for
the first six months of 2008 reflect a debit of 5,464 Mcf related to revised volume allocations for the years 2004 through 2007. Capital expenditures decreased from $40,369 in the first six months
of 2008 to $(55,435) in the first six months of 2009 after taking into account a $56,263 credit in 2009 for a prior
period audit adjustment. Operating expenses decreased from $89,012 in the first six months of 2008 to $(19,298) in the first six months of 2009 after taking into account a $36,992 credit in 2009 for a
prior period audit adjustment.

Liquidity and Capital Resources

The Trust's source of capital is the Royalty income received from its share of the Net Proceeds from the Royalty Properties.

On
October 7, 2008, the Trust announced that production from the two most significant oil and gas properties associated with the Trust had ceased following damage inflicted by
Hurricane Ike in September 2008. The platforms and wells on Eugene Island 339 were completely destroyed by Hurricane Ike. While Hurricane Ike caused limited surface damage to the facilities at Ship
Shoal 182/183, all of the wells at Ship Shoal 182/183 were shut-in following hurricane-related damage to a third-party transporter's natural gas pipeline. The more productive wells on the
properties produce both oil and gas, and there is no downstream transmission available for any gas produced from the wells. There can be no assurance that production at Eugene Island 339 will be
restored. While production is expected to remain limited at Ship Shoal 182/183 until the natural gas pipeline is fully repaired and tested, which is anticipated to occur in the third quarter of 2009,
there can be no assurance as to when, or if at all, meaningful production may be restored at Ship Shoal 182/183.

In
addition, production from West Cameron 643 and East Cameron 371 ceased following damage inflicted by Hurricane Ike in September 2008 to third-party transporters' pipelines. The
Managing General Partner of the Partnership understands that the pipelines are in the process of being restored. The pipeline for West Cameron 643 is not expected to be able to take production until
at least the end of 2009; there is no available estimate for when the pipeline for East Cameron 371 will be able to take production. At this point in time, there can be no assurance as to when, or if
at all, production may be restored at West Cameron 643 or East Cameron 371.

On
December 19, 2008, the Trust announced its fourth quarter distribution of approximately $0.7 million, which was paid on January 9, 2009. Based on the damage
caused by Hurricane Ike, the Trust's scheduled distribution for the fourth quarter of 2008 was severely negatively impacted, although there were funds available for distribution given that there was
some production from Eugene Island 339 and Ship Shoal 182/183 in August and September 2008. On March 25, 2009, the Trust announced that there would be no trust distribution for the first
quarter of 2009. Similarly, on June 26, 2009, the Trust announced that there would be no trust distribution for the second quarter of 2009. There were no Net Proceeds distributed to the Trust
for the first or second quarter of 2009.

There
are not likely to be sufficient Net Proceeds from the Royalty Properties for the Trust to make a regularly scheduled quarterly distribution to Unit holders for the foreseeable
future. As a result of the damage inflicted by Hurricane Ike, Net Proceeds will continue to be severely impacted by both reduced production, from historical levels, and the amount of expenditures
incurred that are associated with such damages, including the expenditures required to plug and abandon the wells on Eugene Island 339, and, perhaps, to redevelop the facility at Eugene Island 339.

17

---



Future
Net Proceeds from the Royalty Properties may take into account the Trust's share of project costs and other related expenditures that are not covered by the insurance of the
operators of the Royalty Properties. The Trust's net portion of the aggregate cost to plug and abandon the wells subject to the royalty on Eugene Island 339 is currently estimated to be approximately
$13 million. If development and production costs of the Royalty exceed the proceeds of production from the Royalty Properties, the Trust will not receive Net Proceeds until future proceeds from
production exceed the total of the excess costs plus accrued interest, at a rate equal to one-fourth of (i) one-half of one percent plus (ii) the median between
the prime interest rate at the end of a quarterly period in which there are excess costs and the prime interest rate at the end of the preceding quarterly period, during the deficit period.
Development activities may not generate sufficient additional revenue to repay the costs. Accordingly, there will not be sufficient Net Proceeds from the Royalty Properties to make distributions for
some period of time in the future. At this time, the ultimate outcome of these matters cannot be determined with any degree of certainty.

For
the second quarter of 2009, under the terms of the Conveyance, production costs for the Royalty Properties exceeded gross proceeds thereof, with the Trust's portion of such excess
equal to approximately $2.2 million. For the first six months of 2009, the Trust's portion of the amount by which production costs exceeded gross proceeds is approximately $3.1 million.

Substantial
uncertainties exist with regard to future oil and gas prices, which are subject to material fluctuations due to changes in production levels and pricing and other actions
taken by major petroleum producing nations, as well as the regional supply and demand for gas, weather, industrial growth, conservation measures, competition, economic conditions generally and other
variables.

In
accordance with the provisions of the Trust Agreement, generally all Net Proceeds received by the Trust, net of Trust general and administrative expenses and any cash reserves
established for the payment of contingent or future obligations of the Trust, are distributed currently to the Unit holders.

Future Net Revenues and Termination of the Trust

Based on a reserve study provided to the Trust by DeGolyer and MacNaughton, independent petroleum engineers, as of October 31,
2008 future net revenues attributable to the Trust's royalty interests were estimated at $24.2 million. Estimates of proved oil and gas reserves attributable to the Partnership's royalty
interest are based on existing economic and operating conditions in effect at October 31, 2008 in order to correspond with distributions to the Trust. Such reserve study also indicates that
approximately 40% of the future net revenues from the Royalty Properties are expected to be received by the Trust during the next three years. Solely for purposes of being able to complete the reserve
study so that the Trust could file its Form 10-K for the year ended December 31, 2008, DeGolyer and MacNaughton assumed that Eugene Island 339 will not be redeveloped. As
such, the reserve study does not include any reserves or values attributable to Eugene Island 339, nor does it include the Trust's net portion of the aggregate cost to plug and abandon the wells
subject to the royalty on Eugene Island 339, which net portion is currently estimated to be approximately $13 million. The assumption was made by DeGolyer and MacNaughton because Chevron had
not made a decision regarding any redevelopment of Eugene Island 339 and such decision would impact the treatment of Eugene Island 339 for purposes of preparing a reserve study for the Partnership.
Because the Trust will terminate in the event estimated future net revenues fall below $2.0 million, it would be possible for the Trust to terminate even though some or all of the Royalty
Properties continued to have remaining productive lives. Upon termination of the Trust, the Trustees will sell for cash all of the assets held in

18

---



the
Trust estate and make a final distribution to Unit holders of any funds remaining after all Trust liabilities have been satisfied. The estimates of future net revenues discussed above are subject
to large variances from year to year and should not be construed as exact. There are numerous uncertainties present in estimating future net revenues for the Royalty Properties. The estimate may vary
depending on changes in market prices for crude oil and natural gas, the recoverable reserves, annual production and costs assumed by DeGolyer and MacNaughton. In addition, future economic and
operating conditions as well as results of future drilling plans may cause significant changes in such estimate. The discussion set forth above is qualified in its entirety by reference to the Trust's
Annual Report on Form 10-K for the year ended December 31, 2008. The Trust's Form 10-K is available at the website of the Securities and Exchange
Commission ("SEC") at www.sec.gov or upon request from the Corporate Trustee.

Special Cost Escrow Account

The Conveyance provides for reserving funds for estimated future "Special Costs" of plugging and abandoning wells, dismantling
platforms and other costs of abandoning the Royalty Properties, as well as for the estimated amount of future drilling projects and other capital expenditures on the Royalty Properties. As provided in
the Conveyance, the amount of funds to be reserved is determined based on factors including estimates of aggregate future production costs, aggregate future Special Costs, aggregate future net
revenues and actual current net proceeds. Deposits into this account reduce current distributions and are placed in an escrow account and invested in short-term certificates of deposit.
Such account is herein referred to as the "Special Cost Escrow" account. The Trust's share of interest generated from the Special Cost Escrow account serves to reduce the Trust's share of allocated
production costs.

Special
Cost Escrow funds will generally be utilized to pay Special Costs to the extent there are not adequate current net proceeds to pay such costs. Special Costs that have been paid
are no longer included in the Special Cost Escrow calculation. Deposits to the Special Cost Escrow account will generally be made when the balance in the Special Cost Escrow account is less than 125%
of estimated future Special Costs and there is a Net Revenues Shortfall (a calculation of the excess of estimated future costs over estimated future net revenues pursuant to a formula contained in the
Conveyance). When there is not a Net Revenues Shortfall, amounts in the Special Cost Escrow account will generally be released, to the extent that Special Costs have been incurred. Amounts in the
Special Cost Escrow account will also be released when the balance in such account exceeds 125% of estimated future Special Costs. In the first six months of 2009, there were no funds released or
escrowed from the Special Cost Escrow account. As of June 30, 2009, $4,306,735 remained in the Special Cost Escrow account. The funds held in the Special Cost Escrow account are not reflected
in the financial statements of the Trust. The discussion of the terms of the Conveyance and Special Cost Escrow account contained herein is qualified in its entirety by reference to the Conveyance
itself, which is an exhibit to this Form 10-Q and is available upon request from the Corporate Trustee.

Chevron,
in its capacity as the Managing General Partner of the Partnership, has advised the Trust that additional deposits to the Special Cost Escrow account may be required in future
periods in connection with other production costs, other abandonment costs, other capital expenditures and changes in the estimates and factors described above. Such deposits could result in a
significant reduction in Royalty income in the periods in which such deposits are made, including the possibility that no Royalty income would be received in such periods.

19

---



Overview of Production, Prices and Royalty Income

The following schedule provides a summary of the volumes and weighted average prices for crude oil and condensate and natural gas
recorded by the Working Interest Owners for the Royalty Properties, as well as the Working Interest Owners' calculations of the Net Proceeds and the royalties paid to the Trust during the periods
indicated. Net Proceeds due to the Trust are calculated for each three month period commencing on the first day of February, May, August and November.

Royalty Properties
Three Months Ended
June 30,(1)2009

2008Crude oil and condensate (bbls)


35,475


103,147Natural gas and gas products (Mcfe)


1,801


423,667Crude oil and condensate average price, per bbl

$
51.11

$
97.73Natural gas average price, per Mcf (excluding gas products)

$
6.29

$
8.70Crude oil and condensate revenues

$
1,813,293

$
10,080,263Natural gas and gas products revenues


21,761


3,693,401Production expenses


(10,763,900
)

(2,773,442
)Capital expenditures


(10,964
)

(311,505
)Undistributed net loss (income)(2)


8,936,312


27,704Refund of (provision for) Special Cost Escrow


3,498


288,640Net Proceeds




$
11,005,061Royalty interest


x25
%

x25
%Partnership share




$
2,751,265Trust interest


x99.99
%

x99.99
%Trust share of Royalty Income

$


$
2,750,990


---

20

---



Royalty Properties
Six Months Ended
June 30,2009

2008Crude oil and condensate (bbls)


53,999


236,562Natural gas and gas products (Mcfe)


157,071


1,000,051Crude oil and condensate average price, per bbl

$
52.27

$
93.18Natural gas average price, per Mcf (excluding gas products)

$
6.32

$
7.81Crude oil and condensate revenues

$
2,822,575

$
22,043,085Natural gas and gas products revenues


1,031,988


8,094,013Production expenses


(16,947,089
)

(4,736,015
)Capital expenditures


(287,388
)

114,172Undistributed net loss (income)(1)


13,291,668


(88,115
)Refund of (provision for) Special Cost Escrow


88,247


5,850,032Net Proceeds




$
31,277,172Royalty interest


x25
%

x25
%Partnership share




$
7,819,293Trust interest


x99.99
%

x99.99
%Trust share of Royalty Income

$


$
7,818,511


---

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

The only assets of and sources of income to the Trust are cash and the Trust's interest in the Partnership, which is the holder of the
Royalty. Consequently, the Trust is exposed to market risk associated with the Royalty from fluctuations in oil and gas prices. Reference is also made to Note 2 of the Notes to Financial
Statements included in Item 1 of this Form 10-Q.

Item 4.    Controls and Procedures.

Evaluation of disclosure controls and procedures.The Corporate Trustee maintains disclosure controls and procedures designed to ensure
that
information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and regulations. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the
Trust is accumulated and communicated by Chevron, as the Managing General Partner of the Partnership, and the Working Interest Owners to the

21

---



Corporate
Trustee of the Trust, and its employees who participate in the preparation of the Trust's periodic reports as appropriate to allow timely decisions regarding required disclosure.

As
of the end of the period covered by this report, the Corporate Trustee carried out an evaluation of the Trust's disclosure controls and procedures. Mike Ulrich, as Trust Officer of
the Corporate Trustee, has concluded that the disclosure controls and procedures of the Trust are effective.

Due
to the contractual arrangements of (i) the Trust Agreement, (ii) the Partnership Agreement and (iii) the rights of the Partnership under the Conveyance regarding
information furnished by the Working Interest Owners, the Trustees rely on (A) information provided by the Working Interest Owners, including historical operating data, plans for future
operating and capital expenditures, reserve
information and information relating to projected production, (B) information from the Managing General Partner of the Partnership, including information that is collected from the Working
Interest Owners, and (C) conclusions and reports regarding reserves by the Trust's independent reserve engineers. See Item 1A. Risk Factors "The Trustees and the Unit
holders have no control over the operation or development of the Royalty Properties and have little influence over operation or development" and "The Trustees rely upon the Working Interest Owners and
Managing General Partner for information regarding the Royalty Properties" in the Trust's Annual Report on Form 10-K for the year ended December 31, 2008 for a description of
certain risks relating to these arrangements and reliance on and applicable adjustments to operating information when reported by the Working Interest Owners to the Corporate Trustee and recorded in
the Trust's results of operation.

Changes in Internal Control Over Financial Reporting.During the three months ended June 30, 2009, there has been no change in the
Trust's
internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting. The Corporate Trustee notes
for purposes of clarification that it has no authority over, and makes no statement concerning, the internal control over financial reporting of the Working Interest Owners or the Managing General
Partner of the Partnership.

22

---





PART IIOTHER INFORMATION

Item 1A.    Risk Factors.

There have not been any material changes from risk factors previously disclosed in the Trust's response to Item 1A of
Part 1 of the Trust's Annual Report on Form 10-K for the year ended December 31, 2008.

Item 6.    Exhibits.

(Asterisk indicates exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference.)

SEC File or
Registration
Number

Exhibit
Number4
(a)*


Trust Agreement dated as of January 1, 1983, among Tenneco Offshore Company, Inc., Texas Commerce Bank National Association, as corporate trustee, and Horace C. Bailey, Joseph C. Broadus and
F. Arnold Daum, as individual trustees (Exhibit 4(a) to Form 10-K for the year ended December 31, 1992 of TEL Offshore Trust)


0-6910


4
(a)4
(b)*


Agreement of General Partnership of TEL Offshore Trust Partnership between Tenneco Oil Company and the TEL Offshore Trust, dated January 1, 1983 (Exhibit 4(b) to Form 10-K for year ended
December 31, 1992 of TEL Offshore Trust)


0-6910


4
(b)4
(c)*


Conveyance of Overriding Royalty Interests from Exploration I to the Partnership (Exhibit 4(c) to Form 10-K for year ended December 31, 1992 of TEL Offshore Trust)


0-6910


4
(c)4
(d)*


Amendments to TEL Offshore Trust Agreement, dated December 7, 1984 (Exhibit 4(d) to Form 10-K for year ended December 31, 1992 of TEL Offshore Trust)


0-6910


4
(d)4
(e)*


Amendment to the Agreement of General Partnership of TEL Offshore Trust Partnership, effective as of January 1, 1983 (Exhibit 4(e) to Form 10-K for the year ended December 31, 1992 of
TEL Offshore Trust)


0-6910


4
(e)10
(a)*


Purchase Agreement, dated as of December 7, 1984 by and between Tenneco Oil Company and Tenneco Offshore II Company (Exhibit 10(a) to Form 10-K for year ended December 31, 1992 of TEL
Offshore Trust)


0-6910


10
(a)10
(b)*


Consent Agreement, dated November 16, 1988, between TEL Offshore Trust and Tenneco Oil Company (Exhibit 10(b) to Form 10-K for year ended December 31, 1988 of TEL Offshore Trust)


0-6910


10
(b)


23

---



SEC File or
Registration
Number

Exhibit
Number10
(c)*


Assignment and Assumption Agreement, dated November 17, 1988, between Tenneco Oil Company and TOC-Gulf of Mexico Inc. (Exhibit 10(c) to Form 10-K for year ended December 31, 1988 of TEL Offshore
Trust)


0-6910


10
(c)10
(d)*


Gas Purchase and Sales Agreement Effective September 1, 1993 between Tennessee Gas Pipeline Company and Chevron U.S.A. Production Company (Exhibit 10(d) to Form 10-K for year ended December 31,
1993 of TEL Offshore Trust)


0-6910


10
(d)31



Certification furnished pursuant to Section 302 of the Sarbanes Oxley Act of 200232



Certification furnished pursuant to Section 906 of the Sarbanes Oxley Act of 2002


24

---





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

TEL OFFSHORE TRUSTBy:

The Bank of New York Mellon Trust
    Company, N.A.
Corporate TrusteeBy:

/s/ MIKE ULRICH Mike UlrichVice PresidentDate: August 7, 2009


The
Registrant, TEL Offshore Trust, has no principal executive officer, principal financial officer, board of directors or persons performing similar functions. Accordingly, no
additional signatures are available and none have been provided.

25

---



QuickLinks